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But today those same investors now have to worry about the growing income-tax liability the trusts are generating.

As a result, some financial advisers say planning for income taxes has caused some rethinking regarding how to best use the trusts, specifically the intentionally defective grantor trust and grantor-retained annuity trust.

Intentionally defective grantor trusts, or IDGTs, are popular in estate planning because they allow the grantor to move assets out of his or her taxable estate, thereby lowering potential estate taxes, while remaining responsible for the income taxes. This way, the income tax burden isn’t transferred to heirs.

However, the latest bull market has created potentially substantial taxable gains for many clients, and with the top federal rate on long-term capital gains at nearly 24%--compared with 15% in 2012--some advisers caution that it may be more difficult for certain clients to pay that income-tax bill.

“Income-tax rates are going up so it becomes more expensive for a grantor to maintain the grantor trust status of a trust they’ve set up,” says
Lynn Halpern Lederman,
managing director and senior fiduciary counsel – Northeast Region at Bessemer Trust, a New York firm that oversees $97.5 billion.

One solution, says Ms. Halpern Lederman, is a common provision that allows grantors to essentially turn off the grantor status of the trust, which means the trust must pay its own income taxes going forward.

However, this election can only be made once--the grantor can’t switch back and forth from paying to not paying the income taxes--so there should be thoughtful consideration of the decision to stop paying the income taxes on behalf of the trust, says
John Voltaggio,
a managing director in New York at
Northern Trust
’s wealth-management division, which manages $220.4 billion.

And Ms. Halpern Lederman notes that she hasn’t seen a huge rush to give up grantor-trust status yet, but “it’s definitely something people are thinking about and monitoring because the checks they have to write are bigger.”

Meanwhile, higher income taxes have prompted some advisers to take a closer look at the assets their clients hold in grantor-retained annuity trusts, or GRATs, which let people give a portion of an asset’s future profits to heirs free of gift or estate tax.

Most of this planning revolves around what is known as the “step-up” in cost basis, which helps eliminate the long-term capital-gains tax on assets that are held until death by raising the owner’s cost basis for such assets to the full market value.

However, in a GRAT, what is transferred to beneficiaries typically doesn’t receive that step-up at death. Therefore, to cut down on capital-gains taxes, it is better to have higher basis assets in the GRAT because those assets won’t get a step-up in basis, says
Sharon Klein,
managing director of family office services and wealth strategies at Wilmington Trust in New York, which oversees about $80 billion in assets.

Ms. Klein suggests swapping out low-basis assets that have recorded gains in the trust with high-basis assets, like cash.

The same swapping can also be considered with IDGTs that still have their grantor status, Mr. Voltaggio of Northern Trust notes.